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The Accounting Historians Journal Vol. 10, No. 2 Fall 1983
John K. Courtis
UNIVERSITY OF WATERLOO
BUSINESS GOODWILL: CONCEPTUAL CLARIFICATION VIA ACCOUNTING, LEGAL AND ETYMOLOGICAL PERSPECTIVES
Abstract: Confusion as to the real nature of commercial goodwill is well-entrenched in the literature, as evidenced by accountants' attention to valuation formulae rather than the underlying assets. The paper traces conceptual clarification of business goodwill via early writers on accounting, legal opinion and etymology. These three perspectives, together with a chronology of 91 selective definitions, reveal the shift in thinking over the past century. Goodwill, from being thought of as a set of inducements which attract persistent patronage, has become sub-merged by methods of valuation based upon superior earning power concepts and by the accounting notion of a residuum.
Introduction
The purpose of the paper is to illustrate how early writers on accounting, legal opinion associated with selected English case law, and etymology have contributed towards conceptual clarifi-cation of the nature of business goodwill. Many descriptions and definitions of goodwill have been presented over the past century by accountants, businessmen, judges, lawyers, economists and others; a selective and comprehensive chronology of these appear in Appendix I. Most of these quasi-definitions can be criticized for being insubstantial, too general, and especially for confusing the nature of the concept with a technique for ascertaining its value. Goodwill has been described as an impalpable,1 ethereal,2 incor-poreal,3 ephemeral,4 immaterial, abstract, shadowy and intangible asset, while it has been defined in such vague terms as advantages, benefits, factors, rights, sources and privileges possessed by a successful business. Through this diversity, a body of definitions has accumulated which are couched in legal, pragmatic, residual, facetious, and philosophical terms.
The scope of the accounting literature survey was determined by the list of references to "goodwill" in the original Accountants' Index, published in 1921, together with twenty-six succeeding sup-